Earlier this year, Berkshire Hathaway threw its name behind Barrick Gold GOLD,
with an investment that flew in the face of Warren Buffett’s long-standing aversion to gold. The news was “shocking on the gold market,” a strategist said at the time.
Now, Kevin Smith, investment director at Crescat Capital, says others are following suit by adding exposure to GC00 gold,
and making a profit from some of those highfliers will be richly rewarded when the bull market turns. Smith, who earlier this year spoke about learning the ropes from a bunch of Berkshire BRK.A shareholders,
the letters his father gave him a long time ago used this chart to show how investors might be at a crucial time.
Basically, stocks are traded at record valuations, while commodities, on the other hand, have never been so undervalued. “The configuration is in place for a pivotal macro in the relative performance of these two asset classes,” Smith wrote in a note to clients. “Conditions comparable to the 1972 Nifty Fifty and 2000 Dotcom bubbles were present.”
He explained that investors will soon be looking to put their money to the highest growth and lowest valuation opportunities, and this will result in a great departure from the biggest stocks that have led this bull market on a record territory.
“Investors with an analytical perspective will soon turn, if not delete, from expensive growth stocks in the era of deflation and fixed income securities and cheap hard assets, creating a reversal of the 30-year decline in the speed of money Smith wrote. Some popular ways to play the rotation that Smith predicted would be to go to Newmont Corp. for a long time. NEM,
and Barrick Gold or participate in ETFs such as GDX GDX,
and GDXJ GDXJ,
Then the even greater opportunity, he says, is to choose the winners from the exploration.
“To be frank, buying gold or silver is not the opposite of investing today,” Smith wrote. “There are enough people who agree that all government-backed fiat currencies are doomed to a certain level of devaluation by inflation due to the level of fiscal and monetary recklessness and unsustainable debt imbalances in the financial system.”
There are no signs of this rotation yet, with the future on the Dow Jones Industrial Average YM00,
Nasdaq NQ00,
and S&P ES00,
all bending over before Monday’s session.